Into the twilight zone: Corporate insolvency amendments, and the disappearing act of section 511 (et al)

Seeking directions from the Court in the period 1 March to 1 September 2017 – what are liquidators and administrators to do?

As many practitioners will be aware, the changes to the Corporations Act 2001 (Cth) implemented by the Insolvency Law Reform Act 2016 (Cth) (ILRA) commence in two tranches – one part on 1 March 2017, and the other on 1 September 2017. This appears to be a perfectly acceptable approach, answering industry concerns about preparedness for the reforms. However, somewhere in the drafting, a raft of critical provisions enabling liquidators and administrators to seek directions from the Court seemingly fell into an abyss of daisy-chain drafting, such that many practitioners have been left quite perplexed as to whether the powers under the following sections of the Corporations Act presently exist:

section 447D (administrator may seek directions);

section 479 (exercise and control of liquidator’s powers); and

section 511 (application to court to have questions determined or powers exercised).

This confusion is compounded for anyone opening their 2017 edition of the Corporations Act, or popping online to check AustLii or, most surprisingly, the Federal Register of Legislation – all of which indicate the above sections were repealed on 1 March 2017.[1] No wonder then that court registries have been rejecting applications for directions and indeed in several recent decisions courts across Australia have proceeded on the basis the sections no longer exist.[2]

However, what all of this overlooks is that by further amending instrument, the Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016 (Cth) (COLAR), certain amendments enacted by ILRA are deferred including, relevantly, the repeal of ss 447D, 479 and 511 of the Corporations Act.

COLAR, Schedule 2, item 1 amends the Corporations Regulations 2001 (Cth) by the addition of a new Part 10.25,[3] which defers the repeal of the disappearing sections of the Corporations Act so that the repeal applies only “in relation to external administrations on and after 1 September 2017.”

Quite separately, the new power to seek directions introduced by ILRA can be found at s 90-15 of the Insolvency Practice Schedule (Corporations) to the Corporations Act, which empowers the Court to make “such orders as it thinks fit” in relation to external administrations. The Court’s power may be exercised on its own initiative, or on application by an interested party under s 90-20, including “a person with a financial interest”, ASIC, an officer of the company and the committee of inspection. The new powers were deemed to have commenced on 1 March 2017,[4] but subsequently deferred to 1 September 2017.[5]

So, the long and the short of it (arguments about the validity of the subordinate regulations amending ILRA as an Act of Parliament aside [6]) is that, until 1 September 2017:

the status quo remains in relation to the power to seek directions from the Court under ss 447D and 511, and the exercise and control of liquidator’s powers under s 479 of the Corporations Act;

the route to that position is a rather painful journey through the cross-referencing of schedules to schedules in ILRA and COLAR noted above;

the convoluted drafting of the new regime, and its part-deferral have together led to the sections in question being inaccurately deleted from the Federal Register of Legislation (and AustLii); and

it is incumbent upon practitioners to guide the Court through the deferred repeal enacted by COLAR in any application relying upon the pre-existing powers under the old “yet to be repealed” sections.

Note also that proceedings issued prior to 1 September 2017 continue to be governed by the Corporations Act in its form prior to the ILRA amendments. ILRA Schedule 2, Part 3 “Transition to the Insolvency Practice Schedule (Corporations)”, item 322, imports new ss 1550 and 1617 into the Corporations Act which provide that such matters will be governed by the ‘old Act’.

The one thing of which you can be sure (other than death, taxes, and that evading the latter will eventually catch up with you no matter whom you might know at the ATO) is that confusion is likely to persist until 1 September 2017. Meanwhile, I would implore practitioners to be diligent, not to believe everything you read (even if it is printed in the Federal Register of Legislation) and take comfort in the knowledge that, at least for the next few months, we can continue to operate under the tried and true regime for seeking directions from Court.

[1] ILRA, Schedule 2, Part 2 “Amendments consequential on the introduction of the Insolvency Practice Schedule (Corporations)”, item 170, specifying s 511 of the Corporations Act to be repealed on 1 March 2017 by operation of ILRA s 2, prescribing commencement and the date fixed by proclamation. [2] A summary of the first six cases considering the amendments can be found at Associate Professor Jason Harris’ blog at https://australianinsolvencylaw.com/2017/04/20/ilra-is-this-all-just-a-bad-dream/.[3] Specifically, regulation 10.25.02(3)(h), which specifies, inter alia, ILRA Schedule 2, Part 2, item 170 for deferral in relation to external administrations – being the item causing the repeal of Corporations Act s 511. For Bankruptcy practitioners, the Insolvency Law Reform (Transitional Provisions) Regulations 2016 (Cth) has the same effect in relation to key provisions of the Bankruptcy Act 1966 (Cth).[4] By operation of ILRA s 2(1) items 2 to 3, the new sections themselves contained in ILRA Schedule 2, item 2.[5] Items 4, 23 and 24 of Schedule 13 to the Corporations Regulations.[6] For further on this, see the upcoming law reform edition of the Insolvency Law Bulletin (ed, Jason Harris), in particular Jim Johnson’s article regarding subordinate legislation and the amendment of Acts of Parliament.